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Medusa Products uses a job-order costing system. Overhead costs are applied to jobs on the basis...

Medusa Products uses a job-order costing system. Overhead costs are applied to jobs on the basis of machine-hours. At the beginning of the year, management estimated that the company would work 88,800 machine-hours and incur $346,320 in manufacturing overhead costs for the year.

   

Required:

1. Compute the company's predetermined overhead rate. (Round your answer to 2 decimal places.)

Predetermined overhead rate ............................... Per MH

2. Assume that during the year the company actually worked only 81,900 machine-hours and incurred $340,000 of manufacturing overhead costs. Compute the amount of underapplied or overapplied overhead for the year. (Round your intermediate calculation to 2 decimal places.)

Solutions

Expert Solution

1. Predetermined overhead rate = Manufacturing overhead incurred / Estimated machine hours

                                                           = $346,320 / 88,800 machine-hours

                                                           = $3.9 per hour

Therefore, the company’s predetermined overhead rate is $3.9 per hour.

2. Actual overhead rate = Actual overhead incurred / Actual hours worked

                                           = $340,000 / 81,900 machine-hours

                                           = $4.15 per hour

Under applied overhead rate = Actual overhead rate – Predetermined overhead rate

                                                     = $4.15 per hour - 3.9 per hour

                                                     = $0.25 per hour

Under applied overhead for the year = Under applied overhead rate × Actual hrs worked

                                                                   = $0.25 per hour × 81,900 hours

                                                                   = $20,475.

Thus, the under applied overhead for the year is $20,475.

ekkarill92 answered 1 year ago
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